4.14-6 Terms of Trade / Protectionism Flashcards
What does the WTO stand for and identify 3 facts?
World Trade Organisation:
- 164 members
- Has around 600 members of staff
- Formed in 1995 replacing GATT
What are the four roles of the WTO?
- Conducts the rules of trade
- Acts as a tribunal enforcing the rules
- Monitors member countries
- Trains and teaches new member countries how to promote free trade.
What is meant by a trading bloc?
- A group of countries, usually geographically close, who have removed trade barriers amongst themselves (Free Trade Areas)
- Possibly common external barriers (Customs Union)
- Sometimes free movement of all factors of production (A Common market)
- Occasionally the same currency and shared central bank (A Currency Union)
Give 3 examples of trading blocs
- NAFTA (North American Trade Agreement)
- EU (European Union)
- ASEAN (Association of South East Asian Nations)
Distinguish between a Free Trade Area and a Customs Union.
A free trade area does not have a common external tariff, such as NAFTA but the EU does.
How has the growth in the number of trading blocs affected the WTO?
- It means countries are organising their own bi-lateral and multilateral agreements rather than going through the WTO
- It may also create issues for the WTO if countries who are outside the trading bloc complain about the trade behaviour of countries within the bloc.
What is meant by bi-lateral agreements?
When two countries negotiate a trade agreement amongst themselves, rather than going through the WTO which would be a multi-lateral trade agreement.
Why might a country prefer to negotiate its own bi-lateral trade agreement rather than adopt a free trade agreement negotiated through the WTO?
It is quicker and the agreement can be tailored to the needs and objectives of the two countries involved rather than having to consider the needs of multiple parties.
Define a tariff
A tariff is a tax on imports - it is paid by the company wanting to sell goods and services into an economy that is not their own and is received by the government of the host country.
Define quota
a quota is a limit on the number of goods that can be imported - once the maximum has been reached, then it is possible for a firm to sell above that number but they may be penalised with a tariff or other restriction.
Define non-tariff barrier
A non-tariff barrier is something that makes trade costlier or difficult, but which is not a tariff. For example, health and safety regulation on imported goods, domestic subsidies, or a government procurement policies that favour domestic firms.
Define voluntary export restraint agreements
This is like a quota but it is self-imposed by the exporting country rather than the importing country - they do this in order to avoid worse tariffs or quotas.
Define protectionism
Protectionism is when a government imposed trade restrictions on other countries.
Identify and explain 4 reasons why a country uses protectionist policies.
- To protect domestic jobs from structural unemployment e.g. protecting jobs in the domestic car industry by subsidising domestic producers.
- To generate government revenue e.g. for developing countries this could be an import source of tax revenue to invest in supply side policies.
- To protect infant industries e.g. the computer industry in Brazil was protected whilst this industry grew to a size where economies of scale could be achieved such that this company could withstand international competition.
- Strategic products such as food are often protected as the country may need to remain self-sufficient in some products in case of conflict.
Explain 3 disadvantages of protectionism
- It reduces total consumption in an economy
- It could lead to retaliation or tariff wars
- It means consumers pay higher prices
